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HerMoney Podcast Bonus Mailbag #18: Credit, Credit Cards and Debt

Kathryn Tuggle  |  December 29, 2019

We're tackling a special batch of listener questions on credit, credit cards, and debt in this Mailbag-only episode.

In honor of a very happy holiday season, we’re celebrating with our HerMoney family with five special Mailbag-focused episodes! Our listeners submit THE BEST questions all year long (to, and we wanted to get as many as possible answered before 2020 rolls around.

In this episode, Jean and Kathryn dive into your questions around credit, credit cards, and debt. Jean answers a question about how business credit cards can impact your personal credit, and what it means for your credit score when you close a business account.

We also dive into a question about adding a child to your credit card as an authorized user to help them build credit. (Note: Not every credit card company reports credit history of authorized users.)

Jean also guides a listener who is wondering if she should claim bankruptcy, see a credit counselor, get a side gig, or cash out a retirement annuity in order to get back on track. Lastly, we advise a woman who is looking to pay down debt with personal loans, while also working to improve her credit score, and to stay motivated to pay down her debt.

From everyone on the HerMoney team, thank you so much for listening to us in 2019. We can’t wait to spend more quality time together in the New Year!

This podcast is proudly supported by Edelman Financial Engines. Let our modern wealth management advice raise your financial potential. Get the full story at Sponsored by Edelman Financial Engines – Modern wealth planning. All advisory services offered through Financial Engines Advisors L.L.C. (FEA), a federally registered investment advisor. Results are not guaranteed. AM1969416

Editor’s note: We maintain a strict editorial policy and a judgment-free zone for our community, and we also strive to remain transparent in everything we do. Posts may contain references and links to products from our partners. Learn more about how we make money.

The HerMoney podcast is supported by      Edelman
All advisory services offered through Financial Engines Advisors L.L.C. (FEA), a federally registered investment advisor. Results are not guaranteed. AM1969416


Jean Chatzky: (00:07)
HerMoney is sponsored by Fidelity Investments. We want you to feel confident about investing so that you can make your money work just as hard as you do. Learn the ropes without the jargon at HerMoney comes to you through PRX. Hey everybody, it’s Jean Chatzky. Thanks so much for joining us today for a special mailbag only episode. We are going through our inbox, we are tackling all of your questions. Kathryn Tuggle is with me in the studio. Hey Kathryn. So today we are tackling credit cards and debt.


Kathryn Tuggle: (00:52)
Yep. Questions we get a lot of.

Jean Chatzky: (00:53)
Well, and I’m not surprised because the levels of debt are going up, up, up. I mean part of it is consumer confidence and it’s great that people are feeling good. It’s great that wages have been rising and that interest rates have stayed low, but across pretty much every category, people are taking on a lot of debt.

Kathryn Tuggle: (01:15)
It’s true. 55% of all Americans with credit cards have debt. And for people who carry a balance, the national average is $4,293 according to Experian.

Jean Chatzky: (01:25)
Wow. Wow. And the studies that we get when you’re me or when you’re Kathryn, you get a lot of studies about spending during the holiday season and number of them have pointed to the fact that this year in particular, it seems that people are more willing to take on additional debt to give their families, give their children the holidays that they’ve been wanting.

Kathryn Tuggle: (01:51)
And that’s a stat that always makes me feel a little sick to my stomach. It’s kind of like when you hear about people going into debt for weddings because you know their heart is in the right place because they want to have the best celebration for the people that they love, but it’s going to cost them.

Jean Chatzky: (02:06)
It is. Well, I mean you ran the numbers on this and on that national average amount of debt, the 4,200, 4,300 that the people who are carrying a balance are living with, if they paid just the minimum on that every month, it would take them 15 years to clear out of debt and pay $4,000 in interest alone.

Speaker 1: (02:31)
Basically doubling the cost for what they bought.

Jean Chatzky: (02:33)
Doubling the cost. Do you know that shoe you just bought cost you 40 bucks? Nope. It cost you $80. And that’s how we have to think about it.

Kathryn Tuggle: (02:41)
I don’t think there’s a more pure example in our society of short term pleasure leading to longterm pain than credit card debt.

Jean Chatzky: (02:50)
And it’s so easy these days to swipe. Right? You don’t even swipe anymore. You just lift up your phone and all of a sudden you’ve made a purchase.

Kathryn Tuggle: (02:59)
It’s so true.

Jean Chatzky: (03:00)
Right? And you’ve got your card number saved. I don’t have to type anything in when I buy something from Amazon, I just click.

Kathryn Tuggle: (03:07)
Nor do I. Well, what’s funny, Becca and I were just talking on the way to the studio and I said that I’m somehow more aware of my spending when I’m buying something online now than when I’m buying something in person. Seeing the charges come up online registers with me in a more concrete way than if I’m just swiping the card at a kiosk.

Jean Chatzky: (03:31)
Maybe it’s because you are looking at your cart and you get to see the total before you actually click pay for it. Right?

Kathryn Tuggle: (03:39)
I think that might be right.

Jean Chatzky: (03:40)
I had this experience a couple of times. I am a notorious shopper, not buyer, so I put a lot of stuff in my cart and I don’t often pull the trigger and complete the transaction, but I had a couple instances of that just over the past couple of weeks where I put things in, I put in the discount codes that I had, the various coupon codes. I looked at the numbers and then I was like, nah, you know you have to really want it. When you see those numbers flashing at you on the screen.

Kathryn Tuggle: (04:11)
where do you think you’re more likely to spend, right? With a real life cart that you’ve got full of stuff that you’re pushing around target or a virtual cart? When are those items more likely to be purchased?

Jean Chatzky: (04:25)
Probably the real life cart because I’ve taken the time to actually go there. I’ve loaded up a cart and I’m not going to like put them back or abandon the cart. Although sometimes I try things on and then I’m just like, nah.

Kathryn Tuggle: (04:43)
So should we all just move to online shopping then?

Jean Chatzky: (04:45)
I don’t know. I don’t think so. I think we spend faster online. We got to look at, we got to do some, some digging, but before we do that, let’s answer these listener questions and help some people out this holiday season.

Kathryn Tuggle: (04:56)
Our first note comes to us from Catherine. She writes, I love your show and the Facebook group.

Jean Chatzky: (05:01)
Oh, that’s good. If you’re listening and you’re not in our Facebook group, just ask us. It’s the HerMoney Facebook group on Facebook, clearly, and we’ll let you in. But I love the conversations going in there. There was hundreds of comments this past couple of weeks about somebody who’d spilled some wine on somebody else by accident and offered at the moment to pay for dry cleaning and the…

Kathryn Tuggle: (05:24)
…which was declined.

Jean Chatzky: (05:24)
Which was declined. And then like a week or so later they called and said, we want you to pay for our outfit.

Kathryn Tuggle: (05:31)
The whole outfit for $300 not just the cleaning fee.

Jean Chatzky: (05:35)
Right. And that inspired a lot of interesting conversation.

Kathryn Tuggle: (05:39)
I love the feedback that the women in our group give. They’re also wise and insightful and funny. So join us. She writes, You’ve inspired me to really take a look at my finances and over the last year get my financial house in order. I even have my three kids listening and I’m teaching them about being financially responsible. My son wants to start a financial independence club at school now.

Jean Chatzky: (06:00)
Love that.

Kathryn Tuggle: (06:02)
I’ve heard you speak many times about closing out credit card accounts and how that can affect your credit score. But I’m wondering about business credit card accounts. My husband and I run a small business and we recently opened a second business credit card because it has better reward options. My credit score dropped from 815 to 807 after that. My question is we have a second business credit card that we would like to close since it has an annual fee and we don’t plan to use it any longer. Do we need to worry about our credit scores dropping when we close it? Do business credit cards affect your credit score in the same way that personal cards do? We don’t plan to make any major purchases or see any reason that a small drop in our credit score could be detrimental to us over the next few months. I’m assuming that after a few months, any drop in our credit score would go back up as long as we continue to manage our credit responsibly. Thanks for all your wonderful advice.

Jean Chatzky: (06:51)
I like that you’ve gotten your kids listening. That’s just terrific, so thank you so much for that. Generally, closing a business card is not going to have any impact on your personal credit score. If it does, it’ll be a very small impact smaller than if you were to close a personal credit card. The one downside is that if you think you’re going to want a business credit card from this company in the future and you close one, it may be harder to get it the next time. So I’d think about it that way. And the other thing that occurred to me is that many of the companies that issue business credit cards have various fee structures and one thing that you may be able to do is call them and rather than closing this card, switch it to a no fee card with the same issuer, with the same credit line. If there’s any chance that you may need this card in the future, I’d look at that. But otherwise I don’t really see a downside to this. Your credit scores are plenty high.

Kathryn Tuggle: (07:54)
Agree and the drop that she had experienced before is not really anything to worry about.

Jean Chatzky: (08:00)
She’s over 800 I mean, I keep telling these listeners, they’re going to think my credit score sucks. I keep telling our listeners, your credit scores are higher than mine.

Kathryn Tuggle: (08:07)
And their mortgage rates are better than yours.

Jean Chatzky: (08:07)
They are. Everybody’s doing better than me, but my credit score is excellent and just fine and yours is still higher so do not worry about it.

Kathryn Tuggle: (08:19)
Our next letter comes to us from Cindy. She writes, you have mentioned on your show that an authorized user being added to your credit card account, in this case a college age student, can help them start establishing a positive credit history. Can you explain how that works and how much it really helps?

Jean Chatzky: (08:34)
Absolutely. So it’s not just a positive credit history, it’s any credit history. When you have no credit, it’s tough to get credit and college students who have no cards of their own and often no income on which can qualify for a card on their own run the risk of coming out of college with no credit or a very thin credit file. That’s basically what we call it when you have no credit, which makes it difficult for them to do things like renting an apartment or at that point getting a credit card. And so when you add a child, a college student, to one of your cards as an authorized user, they are piggybacking on your good behavior. You have to make sure a couple of things happen. Not every credit card company reports to the credit bureaus on behalf of the authorized users so you want to call them, make sure it happens. I did this with my kids. American Express does report because that’s the card that we used for them. But if you want to use a different card, call them and just check. The second thing that you should know is that it will take six months of reporting on behalf of your child for them to have an active and robust enough credit file that it’s no longer thin, that it is enough for them to, at some point when they have an income, be able to go out and get a card on their own. And finally you need to make sure that you’re going to pay your bills on time because if your credit behavior is not good, that’s the credit that’s going to show up on your kids’ account, so you don’t want to do this if you are not in a position for your score to be beneficial to them. But otherwise I think it’s a much better solution than co-signing. You can set up a separate credit limit for your kids. In many cases, you can set up some sort of a side deal with them where they have to pay you for the bill or a percentage of the bill or not depending on what you want that card to be used for, but you have strings attached. You can monitor their behavior, the bill will come to you. It’s still yours to pay and therefore you have a lot more control. If you were to go out and just co-sign for a card in your kid’s name and they don’t pay the bill, you aren’t even going to see the bill and so there’s no guarantee that you’ll be able to keep them on the right track.

Kathryn Tuggle: (11:24)
Great point.

Jean Chatzky: (11:25)
Let me just take a quick breather before we do a couple of other questions to remind everybody that her money is proudly sponsored by Fidelity Investments. Fidelity is all about helping you demand more from your money and one way they’re doing that is by paying you more on your cash. Now at Fidelity, when you open a new retail brokerage or retirement account, your cash automatically goes into a money market fund where it can work harder for you. Just to note, you’ll get this benefit automatically and your cash goes into a money market fund unless you choose another cash option. For more information and the current rate, go to You could lose money by investing in a money market fund. An investment in a money market fund is not insured or guaranteed by the federal deposit insurance corporation or any other government agency before investing, always read a money market funds prospectus for policies specific to that fund. Fidelity Brokerage Services LLC. We are back with our mailbag special. We’re tackling your questions around credit cards and consumer debt. Kathryn, what’s next?

Kathryn Tuggle: (12:38)
Our next note is from an anonymous listener who refers to herself as trying to get back on track. She says, I’m wondering if I should claim bankruptcy or take a penalty hit on a retirement annuity to make a major correction in my financial situation. I’ve been a freelancer for years, but in October of 2018 a huge client of 4 years terminated my contract. I was devastated emotionally and it also wreaked havoc on my financial situation. To cover monthly expenses, I used available credit thinking I’d find another client to get back on track, but that hasn’t happened. I then decided it would be a good idea to work with an expensive career coach for six months, the cost of which was also put on the credit card. The results of this relationship were negligible. I’m now behind on credit card payments and find myself in a huge amount of debt hovering at $30,000. While I’m still doing freelance with other clients, most of my income comes from three minimum wage part time jobs. I have recently confirmed with my bank that at 7 months past due, my account will be written off their books and likely go to collections. I’m wondering about a few options. Should I just claim bankruptcy and start over? Should I take a lump sum payout from the retirement annuity I have from a previous employer? The value of which stands at about $65,000 to $70,000 is there something else I’m not considering? I do not own a home. I own my car outright and beyond this debt, my only expenses are rent, utilities, car and life insurance and the usual expenses of day to day life. I am single with no dependents.

Jean Chatzky: (14:07)
First of all, I just want to say that I am sorry that you’re in this situation. The hard times hit so many people every single year, but what I know from hearing from listeners who have gone through hard times in the past is that you will come out of this and it will get better and I think it’s great that you wrote in to figure out what the next steps would be. There’s an interim step before bankruptcy and before pulling money out of your retirement that I want you to look at. It’s seeing a not for profit credit counselor. A not for profit credit counselor can look at your credit, can look at how much you owe, can recommend whether you should pursue debt settlement, which is where you take a small lump sum of money and you make an offer that’s lower than the amount that you owe in order to satisfy the debt. Particularly when you go to collections, you often have to pay nowhere near a full dollar on each dollar that you owe in order to settle your debts because the collectors didn’t pay that much. They can advise you whether bankruptcy is the right option, but they’ll sit with you for an hour and they’ll go through an intake process and they’ll make recommendations that are right for you. I also don’t want you to touch these retirement assets before you go through credit counseling because they may be protected in bankruptcy and I don’t want to see you lose them if losing them is not something that you have to do. So there’s an organization called the national foundation for credit counseling. It’s Go on their website, find a counselor in your area, go through the intake process. It can happen on the phone, online or in person. If there’s a way to get to a credit counselor personally, that would be my recommendation and just know that if what they recommend is a debt management program, that it’s something that is not free, but it’s not a very high cost either, and it usually takes 4 to 5 years to come out the other side, but once you come out the other side, you will come out with a better credit score, credit rating than you have right now. The other thing I would encourage you to do is focus on the other side of the equation. You’ve got three minimum wage jobs. Clearly they are not really helping you keep your head above water. And I want you to look at your entire skillset and think about where you could potentially apply your skills in ways that you hadn’t thought of previously in industries that might pay you more than you’re earning now. You said a freelancer, I don’t know if that means a freelance writer. If it does, freelance writers who are working in corporations where business is booming, often aren’t writing what they consider the most exciting prose, but they’re getting paid a lot more than people who are trying to publish their first amazing novel. And you may find that if you can work your way into a better employment situation, you can take care of a lot of these problems simultaneously.

Kathryn Tuggle: (17:43)
That’s a great idea. Also, I feel like most freelancers, I know, they know what the side hustle is like.

Jean Chatzky: (17:50)
I think you’re right. I think, I mean it sounds like this was a body blow, losing this longterm client and that your confidence was really shaken. But it’s time to put that away and change your mind and understand that you can do this. And that you have value and that we’re all cheering for you and make 2020 a new start.

Kathryn Tuggle: (18:17)
I was going to say that. 2020 starting fresh.

Jean Chatzky: (18:19)
Yep, absolutely, and let us know. Let us know how it goes.

Kathryn Tuggle: (18:22)
Our last note comes to us from Katie. She writes Hi Jean. I’ve been listening to your podcast for several months now as I’ve recently started my get rid of this freaking debt journey. I’m 23 years old and I make $3,772 per month after taxes. My necessary fixed expenses every month are about $1,800. In terms of debt, I have nearly $5,000 on an Amex with a 27% interest rate and I have $4,000 on a Visa with a 17% interest rate. I recently took out a secured personal loan for about $5,000 with an interest rate of 6% to pay off a huge chunk of debt on the Amex and that payment is $130 a month. I’ll be taking out another unsecured personal loan for $11,700 with an interest rate of 7% to pay off $8,000 in IRS tax debt, at which point I will put the remaining money, hopefully about $3,000 toward the Amex since it has the highest interest rate and the highest balance. The payment on that will be about $285 a month. When all is said and done, I’ll be left with this $1,750 balance on the Amex and the remaining 4,000 on the Visa. I’d really like to transfer this balance to a 0% interest balance transfer card for 20 months, but I’m worried this might negatively impact my credit score since both of the loans were also hard pulls on my credit. What do you think If I don’t apply for this card, I would make the minimum payment on the Visa and pay off the Amex as soon as possible. Lastly, what are your best tips for staying motivated when paying down debt? I know I’m making significantly more progress on my payments than others can, but it still feels so out of reach for the day when I can be totally credit card and personal loan debt free.

Jean Chatzky: (20:04)
So I just first want to applaud you for everything that you’ve done so far. You were really climbing a mountain and by my calculations you are three quarters of the way there. So you are almost almost there. I do not see a downside to applying for this card. Either you’re going to get it or you’re not going to get it and if you don’t get it and there’s one more hard pull on your credit, as long as you continue to pay down this debt, your credit score should continue to rise. So by all means, apply for the balance transfer card, see if you can get a better interest rate. You should also call your cards and ask for a better interest rate from them as well and see if there’s anything that they are willing to do for you. And then I would channel your fourth-grade self and figure out how much debt equals a gold star on the fridge, how many gold stars on the fridge it is going to take you to pay off this debt and start charting your progress. We don’t just chart our progress when we are saving money. We chart our progress when we’re paying down debt and by paying down debt, you are putting an incredible guaranteed return on your money in your wallet. And then I would decide what you’re going to do when that debt is paid off. Maybe for each gold star you take a dollar and you put that dollar in an envelope and by the time you’ve got a hundred stars, you go out and you get a fabulous massage or you buy yourself a ticket to a show that you’ve wanted to see, but do something that is meaningful to you that really puts a bow on the fact that you did something spectacular. Going through this, you are never going to get yourself into this situation again. I can just see it and so I don’t worry that you’re going to dig yourself in another hole, but once you are debt free, I want you to take those same payments that you’ve been making and I want you to build yourself a three-to-six month emergency cushion. That’s your insurance against future credit card debt and just in case you ever lose your resolve, that’ll make sure that you never fall into this situation again.

Kathryn Tuggle: (22:33)
I love the idea of rewarding yourself with something. I had a close friend who bought herself a piece of jewelry after she paid down her student loans and at the time I remember thinking, why would you go spend money as a reward for saving money? But now looking back, it was so smart because she has that keepsake forever. It was a milestone that she reached in her life just like any other milestone and it should be celebrated.

Jean Chatzky: (22:59)
Absolutely. Absolutely. So yes, our permission.Go do something nice for yourself. Thanks to everybody. First of all, thank you for pulling together all these letters.

Kathryn Tuggle: (23:12)
This is fun.

Jean Chatzky: (23:12)
Yeah, Kathryn does an amazing job producing this show. I want to thank everybody for listening today as we have gone through our mailbag. Please keep the letters coming. We love doing these mailbag shows and we will keep them coming if you want them. If you like what you hear, I hope you’ll subscribe to our show at Apple Podcasts. Leave us a review. We love hearing what you think. We also want to thank our sponsor Fidelity. We record this podcast out of CDM Sound Studios. Our music is provided by Track Tribe and our show comes to you through PRX. Thanks so much for listening and we’ll talk soon.

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